Bankruptcy Rules

KWAME HOLMAN:

Most members of Congress are of the opinion it has become too attractive for people in this country to declare bankruptcy; that, more and more, people are using the bankruptcy laws to wipe out their debts even though they have the means to pay some or all of them. Indeed, a record 1.4 million Americans filed for bankruptcy in 1998, a 300% increase from 1980.

SEN. JOHN KERRY:

There has been a decline, as we all know, in the stigma of filing for personal bankruptcy, and certainly we would agree that appropriate changes are necessary in order to ensure that bankruptcy not be considered a lifestyle choice.

KWAME HOLMAN:

And so the Senate this week, as the House did last week, is moving to rewrite the bankruptcy laws for the first time in more than 20 years. Alabama Republican Jeff Sessions is leading the effort.

SEN. JEFF SESSIONS:

If you can pay back your debts, you ought to pay them; that we ought not basically say a person with a $100,000 income, perfectly capable of paying back a substantial portion of his debts, and just pay none of them. In fact, some of these people, over a period of three to five years, can pay back all of their debts.

KWAME HOLMAN:

People filing for bankruptcy currently have two paths on which to proceed, chapter seven and chapter 13. Those who file under chapter 13 are allowed to keep their assets if they agree to pay their debts– usually over a period of years– under a court-structured plan. But the more frequently-used bankruptcy option is Chapter Seven, in which some of a debtor's assets are sold off to satisfy creditors but most remaining debt, such as credit card debt, is forgiven. Many in Congress want to rewrite the bankruptcy laws to make the Chapter Seven option available only to those who legitimately can't afford to pay their debts.

SEN. JEFF SESSIONS:

That is the change. I think well over half of the people who file bankruptcy– maybe three-fourths, maybe even more– will be below median income, so they will not be affected by this means testing of bankruptcy — just those above median income based on family size and that sort of thing.

KWAME HOLMAN:

A year ago, Congress overwhelmingly approved legislation with major features similar to those in this bill. But President Clinton refused to sign it; President Bush has indicated he will. And so for the past week, members of the Senate have proposed dozens of amendments to the bankruptcy legislation trying to make what most consider a good bill better. For instance, several Democrats argued for tougher restrictions on some mortgage lenders who seek protection under bankruptcy laws. Schumer of New York succeeded in selling his amendment.

SEN. CHARLES SCHUMER:

When someone is terribly victimized because of a predatory lender, this amendment prevents that predatory lender from declaring bankruptcy, selling its loans into the secondary market, and then vamoosing, leaving the poor homeowner with nothing.

KWAME HOLMAN:

But a proposal by Illinois' Dick Durbin was rejected.

SEN. RICHARD DURBIN:

For those who have not heard the Durbin amendment, it says if you are going to go to bankruptcy court and claim protection to try to pursue a mortgage foreclosure, you have to walk into bankruptcy court with clean hands. You cannot be an unscrupulous, illegal lender who has taken advantage and exploited poor people, the elderly, and widows, and walk into bankruptcy court and say, "I want the protection of the law."

SEN. PHIL GRAMM:

So our colleague would have us believe that because you are paying a premium, because you have no established credit, or because you have troubled credit, that somehow this kind of lending is illegitimate, predatory. Now what do you think is going to happen if these provisions become law? Thousands of reputable lenders who are making loans to people who otherwise could not own their own home will get out of the mortgage-making business.

KWAME HOLMAN:

Democrats also argued for new restrictions on credit card companies who market to minors.

SEN. CHRISTOPHER DODD:

The fact of the matter is, these abusive solicitations assume that if the young adult is unable to pay, that they will be bailed out by their parents. Many times this means parents must sacrifice other things in order to make sure their child does not start out their adult life in a financial hole, with an ugly black mark on their credit history.

KWAME HOLMAN:

Feinstein of California proposed an amendment to limit the amount of credit made available to young adults.

SEN. DIANNE FEINSTEIN:

This amendment would put a $2,500 cap on any credit card issued to a minor– that is, an individual under 21– unless the minor submits an application with the signature of his parent or guardian indicating joint liability for debt, or the minor submits financial information indicating an independent means or an ability to repay the debt that the card accrues.

KWAME HOLMAN:

Dodd of Connecticut proposed a similar amendment.

SEN. CHRISTOPHER DODD:

All my amendment does, Mr. President, is require that any credit card issuer, prior to granting credit to persons under the age of 21, obtain one of three things – only one of three things: Either get your parents or guardians to co-sign, demonstrate you can pay the bills, or agree to take a course on credit. Now, that's not an onerous obligation, seems to me.

KWAME HOLMAN:

However, Senate Republicans derailed those credit card restrictions.

SEN. JEFF SESSIONS:

The reason college students primarily are filing bankruptcy and the reason many of them are deeply in debt is paying for their tuition and fees, not on their credit card. It is their loan debt payment that they've got very deeply in, and at some point they end up running up credit card bills too perhaps.

KWAME HOLMAN:

Throughout the week, the Senate dug through the pile of amendments and rejected almost every one, keeping the original bill nearly intact.

SEN. ORRIN HATCH:

The bankruptcy bill is a bipartisan bill. It is not a Republican bill, it is not a Democrat bill, it is a bipartisan bill. We've worked very strongly all these years to bring it about.

KWAME HOLMAN:

But Senate support for the bankruptcy bill will not be unanimous.

SEN. PAUL WELLSTONE:

The credit card industry, broadly defined, big givers, heavy hitters, a huge and powerful lobbying coalition, they have way too much access, and they have way too much say, and it is an institutional problem because the people for whom go in and file Chapter Seven, and trying to rebuild their lives — they don't have the same clout; they don't have the same economic resources; and, quite frankly, I think this bill is too harsh, it is not balanced, it is not just, it is not fair, and there are a whole lot of families in this country who are going to pay the price.

KWAME HOLMAN:

Nonetheless, a strong majority of the Senate is expected approve the bankruptcy bill this evening.

JIM LEHRER:

And just a few moments allege, the Senate in fact passed the bill. The vote was 83-15. Still to come on the NewsHour tonight, new violence in the Balkans.